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Faustmann and the Climate

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This paper presents an adjusted Faustmann Rule for optimal harvest of a forest in the presence of a social cost of carbon emissions. A contribution of the paper is to do this within theoretical and numerical frameworks that take account of the dynamics and interactions of the forest's multiple carbon pools within an infinite time horizon model. With our less restrictive assumptions we find that a social cost of carbon has a significantly stronger effect on the optimal harvest age than found in earlier studies. Considered is also how increased use of harvest residues for energy purposes and storage of carbon in building materials and furniture should influence the length of the rotation period. The theoretical results are quantified within a numerical framework.

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  • Michael Hoel & Bjart Holtsmark & Katinka Holtsmark, 2012. "Faustmann and the Climate," Discussion Papers 701, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:701
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    2. Holtsmark, Bjart & Hoel, Michael & Holtsmark, Katinka, 2013. "Optimal harvest age considering multiple carbon pools – A comment," Journal of Forest Economics, Elsevier, vol. 19(1), pages 87-95.
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    11. G. Cornelis van Kooten & Clark S. Binkley & Gregg Delcourt, 1995. "Effect of Carbon Taxes and Subsidies on Optimal Forest Rotation Age and Supply of Carbon Services," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(2), pages 365-374.
    12. Gutrich, John & Howarth, Richard B., 2007. "Carbon sequestration and the optimal management of New Hampshire timber stands," Ecological Economics, Elsevier, vol. 62(3-4), pages 441-450, May.
    13. Bjart Holtsmark, 2012. "Harvesting in boreal forests and the biofuel carbon debt," Climatic Change, Springer, vol. 112(2), pages 415-428, May.
    14. Samuelson, Paul A, 1976. "Economics of Forestry in an Evolving Society," Economic Inquiry, Western Economic Association International, vol. 14(4), pages 466-492, December.
    15. Pukkala, Timo, 2011. "Optimizing forest management in Finland with carbon subsidies and taxes," Forest Policy and Economics, Elsevier, vol. 13(6), pages 425-434, July.
    16. Hartman, Richard, 1976. "The Harvesting Decision When a Standing Forest Has Value," Economic Inquiry, Western Economic Association International, vol. 14(1), pages 52-58, March.
    17. Price, Colin & Willis, Rob, 2011. "The multiple effects of carbon values on optimal rotation," Journal of Forest Economics, Elsevier, vol. 17(3), pages 298-306, August.
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    Cited by:

    1. Michael Hoel & Michael Olaf Hoel, 2024. "The Path to Net Zero Emissions," CESifo Working Paper Series 10939, CESifo.
    2. Holtsmark, Bjart & Hoel, Michael & Holtsmark, Katinka, 2013. "Optimal harvest age considering multiple carbon pools – A comment," Journal of Forest Economics, Elsevier, vol. 19(1), pages 87-95.
    3. Susaeta, Andres & Chang, Sun Joseph & Carter, Douglas R. & Lal, Pankaj, 2014. "Economics of carbon sequestration under fluctuating economic environment, forest management and technological changes: An application to forest stands in the southern United States," Journal of Forest Economics, Elsevier, vol. 20(1), pages 47-64.
    4. Hoel, Michael & Holtsmark, Bjart & Holtsmark, Katinka, 2014. "Faustmann and the climate," Journal of Forest Economics, Elsevier, vol. 20(2), pages 192-210.
    5. Ekholm, Tommi, 2020. "Optimal forest rotation under carbon pricing and forest damage risk," Forest Policy and Economics, Elsevier, vol. 115(C).
    6. Holtsmark, Bjart, 2013. "Boreal forest management and its effect on atmospheric CO2," Ecological Modelling, Elsevier, vol. 248(C), pages 130-134.
    7. Michael Olaf Hoel, 2018. "The Rise and Fall of Bioenergy," CESifo Working Paper Series 6971, CESifo.
    8. Rørstad, Per Kristian, 2022. "Payment for CO2 sequestration affects the Faustmann rotation period in Norway more than albedo payment does," Ecological Economics, Elsevier, vol. 199(C).
    9. Lintunen, Jussi & Uusivuori, Jussi, 2016. "On the economics of forests and climate change: Deriving optimal policies," Journal of Forest Economics, Elsevier, vol. 24(C), pages 130-156.
    10. Hoel, Michael, 2020. "The rise and fall of bioenergy," Journal of Environmental Economics and Management, Elsevier, vol. 101(C).
    11. Ekholm, Tommi, 2016. "Optimal forest rotation age under efficient climate change mitigation," Forest Policy and Economics, Elsevier, vol. 62(C), pages 62-68.
    12. Matthies, Brent D. & Valsta, Lauri T., 2016. "Optimal forest species mixture with carbon storage and albedo effect for climate change mitigation," Ecological Economics, Elsevier, vol. 123(C), pages 95-105.

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    More about this item

    Keywords

    climate; forestry; biofuels; Faustmann; carbon.;
    All these keywords.

    JEL classification:

    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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